[Edaily Marketin Reporter KIM SUNG-SOO ] Uncertainty in the commercial real estate market is growing amid speculation that the U.S. Federal Reserve (Fed) may take a “big step” next month by raising the benchmark interest rate by 0.5 percentage points (p) in a single move.

When interest rates rise, interest expenses increase and required rates of return go up, lowering the asset prices that potential buyers can afford. As a result, both parties must renegotiate prices, leading to delays in transactions or even their outright cancellation.

Anam Tower, Suwon Rose Dale, and Others: Delayed Deal Closings

According to the financial investment industry on the 14th, office properties that have failed to close deals for several years are piling up in the commercial real estate market. There is an increasing number of cases where office transactions that had stalled are re-entering the sales process or where advisory firms are being replaced to find new buyers.

A prime example is Anam Tower, located at 702-10 Yeoksam-dong, Gangnam-gu, Seoul. Anam Tower is a building with six basement levels and 20 above-ground floors, located near Seolleung Station on Subway Line 2, with a total floor area of 44,083.78 square meters (approximately 13,335 pyeong).

Hanwha Asset Management, which owns this property, sought to sell it in 2023. At that time, NH REIT Management attempted to acquire it at approximately 35.97 million won per 3.3 square meters, but the deal fell through. Since then, as market conditions have changed, the sale is proceeding again following the recent selection of Capstone Asset Management as the preferred bidder.

Suseo Rose Dale has also undergone the sale process on several occasions. Located at 280 Gwangpyeong-ro, Gangnam-gu, Seoul (724 Suseo-dong), Suseo Rose Dale is a large-scale mixed-use office complex comprising 8 basement levels and 20 above-ground floors, with a total gross floor area of 97,526 square meters (approximately 29,501 pyeong).

The lower floors (B1 through 10th floor, etc.) consist of large-scale office spaces, while the upper floors are comprised of officetels. The portion being sold consists of the office spaces spanning from B1 to the 10th floor, covering approximately 55,462 square meters (about 16,777 pyeong).

This asset, owned by Intrus Investment Management, was previously put up for sale in 2022 and 2024; however, the process was withdrawn in 2022 during the selection of a sales advisor. The sale was subsequently resumed, and in a bidding process last August, Stick Alternative Asset Management was selected as the preferred bidder at a price of approximately 27 million won per 3.3 square meters.

Seller vs. Buyer: The “Gap” in Price Expectations Widens

Development assets are also reworking their sale strategies. Benepos Seongsu, currently under development by Benepos, attempted a pre-sale last year, but the transaction did not proceed smoothly. Consequently, the company has replaced its existing sale advisors—Savills and Samjung KPMG—with Cushman & Wakefield (C&W), Deloitte, and NAI Korea, and is now resuming the sale process.

Benefos Seongsu is a large-scale, prime-grade office building currently under development by Benefos in the area around 278-3 Seongsu-dong 2-ga, Seongdong-gu, Seoul. Scheduled for completion this month, it consists of 6 basement levels and 18 above-ground floors, with a total floor area of 60,661.9 square meters.

Even large-scale assets for which a deal could not be finalized are reappearing on the market. The Office Towers A and B at Yeongdeungpo Times Square, owned by Koramco Asset Trust, saw the sale fall through in 2024 due to a lack of bidders.

Subsequently, JR Investment Management resumed efforts to acquire the properties after securing EZ Financial Services as a strategic investor (SI). EZ Financial Services is a large independent insurance brokerage firm that allows customers to compare products from dozens of life and property & casualty insurers in one place and provides consulting services.

Amid this situation, uncertainty in the market is growing as the possibility of a “big step” by the Federal Reserve is being discussed. If market interest rates—such as those on domestic government bonds—rise due to the Federal Reserve’s rate hikes, this will lead to an upward trend in the interest rates on senior secured loans, which are used for actual transactions in the office market.

From a real estate buyer’s perspective, a rise in loan interest rates of about 1 percentage point (p) means more than just an increase in financing costs. As loan interest increases, the rate of return on investment decreases accordingly, which in turn lowers the price a buyer can afford.

In effect, the gap between the price the seller wants and the funds the buyer can secure is widening. Even after price negotiations between the seller and buyer are concluded and a preferred bidder has been selected, there are cases where the transaction is delayed or falls through entirely if financing conditions deteriorate.

In particular, since interest rates on senior secured loans—which were in the 3% range at the end of last year—have now surpassed the 5% mark, it is difficult to close deals based on past price levels. This is because a dynamic has emerged where sellers seek to maintain their asking prices, while buyers attempt to lower the price to account for higher financing costs.

A commercial real estate industry insider stated, “When the likelihood of interest rate hikes by the U.S. Federal Reserve increases, potential buyers’ required rates of return also rise, which can make it difficult to proceed with a deal.” They added, “Since the sale price must be lowered to meet the higher required rates of return demanded by equity investors, sellers and buyers sometimes have to renegotiate the price.”